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What is negative amortization on a mortgage?

Last Updated: October 09, 2009

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Negative amortization is where monthly mortgage payments fail to pay the principal owed plus interest, which causes an increase in the outstanding balance (principal). With negative amortization loans, the monthly payment is too small to cover the cost of interest. Thus, the unpaid interest gets added to the unpaid balance. Under negative amortization, the mortgage would never be paid in full.

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